A revolution in the electricity bill

A revolution is underway in the composition of the electricity bill. Following the government’s decision to eliminate the wholesale market auctions that set a constant electricity price for three straight months, April will see the introduction of a new system based on the average wholesale price during the customer’s billing cycle, which could be either monthly or bimonthly.

Consumers with smart meters (those with the ability to discriminate on an hourly basis) will pay the market price at every given hour of the day. Seven million Spanish homes already have these meters, which cost 43 euros to purchase and 10 more to install. This option introduces some volatility, since market prices fluctuate depending on things like the availability of renewable energy. But its estimated effect is not more than three or four euros a year on the utility bill.

Global savings arising from the new system will be upwards of 200 million euros and will affect around 16 million users representing 15 percent of the system’s consumption. The Industry Ministry figures that the new method eliminates the price-raising effect of the auctions, reducing the cost of energy by about 10 percent. The old system generated extra charges of 1.16 billion euros between 2010 and 2013, according to the ministry.

The draft royal decree, which was sent to the National Market and Competition Commission (CNMC) on Monday, also includes the option to pay a fixed price in annual billing periods. This could be an interesting choice for users seeking stability, mainly small and midsized businesses, although ultimately the system is more expensive.

The Industry Ministry will also offer an online tool where consumers may introduce their consumption data to check whether their bill is correct and reflects market prices over that particular billing cycle.

Right now, only 37.5 percent of the electricity bill of an average residential consumer represents actual electricity use. The rest goes in taxes (21.4 percent and elements such as distribution, debt repayment and subsidies to renewable energies (41.1 percent), says the CNMC on its website.

Under the new Voluntary Price for Small Consumers (PVPC), a 50-euro utility bill would be broken down into 20.60 euros for distribution, transportation and renewable energy subsidies, 10.70 euros in taxes, and 18.70 in actual electricity use.

In order to guarantee that the wholesale market functions as it should, both the Industry Ministry and the CNMC watchdog are planning to reinforce surveillance mechanisms that will watch out for atypical price fluctuations such as the one that made the government cancel the December 2013 auction, which yielded a price of 61.40 euros per kW/h. This would have raised consumer rates by 11 percent in January.

During the first 10 days of January, the average price on the wholesale market was 28.80 euros per MWh, fully 53 percent lower than the price at the cancelled auction.

The cost of electricity rose an average 4.5 percent in 2013, and has gone up by nearly 80 percent in the past decade. Spain’s electricity bills are currently among the highest in Europe, topped only by Ireland and Cyprus.